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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended November 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission File No. 0-12867
 
 3COM CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
    
    94-2605794(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)350 Campus DriveMarlborough, Massachusetts
    
    01752(Address of principal executive offices)
    
    (Zip Code)
 (508) 323-1000
 N/A
 þ o
  þ o o
 o þ




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##### 



3COM CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 30, 2007
TABLE OF CONTENTS
  
 PagePART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Condensed Consolidated Statements of Operations
    
    
    1Three and Six Months Ended November 30, 2007 and 2006Condensed Consolidated Balance Sheets
    
    
    2November 30, 2007 and May 31, 2007Condensed Consolidated Statements of Cash Flows
    
    
    3Six Months Ended November 30, 2007 and 2006Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATION
    
    
    27Item 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 4. Submission of Matters to a Vote of Security Holders
    
    
    40Item 5. Other Information
    
    
    40Item 6. Exhibits
    
    
    40SIGNATURES
    
    
    42EXHIBITS
    
    
    43EX-10.1 Amended and Restated,1984 Employee Stock Purchase PlanEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEO & CFO




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 3COM CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months Ended
    
    
    Six Months EndedNovember 30,
    
    
    November 30,(In thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Sales
    
    $
    317,801
    
    
    $
    332,976
    
    
    $
    637,235
    
    
    $
    633,120Cost of sales
    
    
    165,681
    
    
    
    182,825
    
    
    
    336,179
    
    
    
    346,540Gross profit
    
    
    152,120
    
    
    
    150,151
    
    
    
    301,056
    
    
    
    286,580Operating expenses:Sales and marketing
    
    
    80,785
    
    
    
    76,188
    
    
    
    155,189
    
    
    
    153,310Research and development
    
    
    52,199
    
    
    
    48,151
    
    
    
    104,509
    
    
    
    95,944General and administrative
    
    
    31,060
    
    
    
    22,341
    
    
    
    52,538
    
    
    
    42,617Amortization
    
    
    26,260
    
    
    
    12,221
    
    
    
    52,266
    
    
    
    24,402Restructuring charges
    
    
    3,147
    
    
    
    630
    
    
    
    3,572
    
    
    
    555Total operating expenses
    
    
    193,451
    
    
    
    159,531
    
    
    
    368,074
    
    
    
    316,828Operating loss
    
    
    (41,331
    )
    
    
    (9,380
    )
    
    
    (67,018
    )
    
    
    (30,248
    )Gain (loss) on investments, net
    
    
    1
    
    
    
    (911
    )
    
    
    328
    
    
    
    1,381Interest (expense) income, net
    
    
    (3,966
    )
    
    
    11,447
    
    
    
    (7,533
    )
    
    
    21,537Other income, net
    
    
    10,342
    
    
    
    12,616
    
    
    
    22,426
    
    
    
    17,334(Loss) income before income taxes and minority interest
    
    
    (34,954
    )
    
    
    13,772
    
    
    
    (51,797
    )
    
    
    10,004Income tax provision
    
    
    (670
    )
    
    
    (2,315
    )
    
    
    (2,481
    )
    
    
    (3,673
    )Minority interest in income of consolidated joint venture
    
    
    
    
    
    
    (14,973
    )
    
    
    
    
    
    
    (23,915
    )Net loss
    
    $
    (35,624
    )
    
    $
    (3,516
    )
    
    $
    (54,278
    )
    
    $
    (17,584
    )Basic and diluted net loss per share
    
    $
    (0.09
    )
    
    $
    (0.01
    )
    
    $
    (0.14
    )
    
    $
    (0.04
    )Shares used in computing per share amounts:Basic and diluted
    
    
    398,989
    
    
    
    393,352
    
    
    
    398,015
    
    
    
    392,619
  1




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3COM CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  November 30,
    
    
    May 31,(In thousands, except per share data)
    
    2007
    
    
    2007ASSETSCurrent assets:Cash and equivalents
    
    $
    419,143
    
    
    $
    559,217Notes receivable
    
    
    70,996
    
    
    
    77,368Accounts receivable, less allowance
for doubtful accounts of $16,124 and
$15,292 respectively
    
    
    127,550
    
    
    
    102,952Inventories
    
    
    93,788
    
    
    
    107,988Other current assets
    
    
    54,227
    
    
    
    50,157Total current assets
    
    
    765,704
    
    
    
    897,682Property and equipment, less accumulated
depreciation and amortization of $197,936
and $234,554 respectively
    
    
    63,919
    
    
    
    76,460Goodwill
    
    
    767,274
    
    
    
    766,444Intangible assets, net
    
    
    322,678
    
    
    
    371,289Deposits and other assets
    
    
    26,747
    
    
    
    39,217Total assets
    
    $
    1,946,322
    
    
    $
    2,151,092LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    103,115
    
    
    $
    110,430Current portion of long-term debt
    
    
    48,000
    
    
    
    94,000Accrued liabilities and other
    
    
    366,873
    
    
    
    435,638Total current liabilities
    
    
    517,988
    
    
    
    640,068Deferred taxes and long-term obligations
    
    
    14,865
    
    
    
    23,725Long-term debt
    
    
    288,000
    
    
    
    336,000Stockholders equity:Preferred stock, $0.01 par value,
10,000 shares authorized; none
outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value,
990,000 shares authorized; shares
issued: 402,205 and 399,064
respectively
    
    
    2,337,557
    
    
    
    2,323,356Retained deficit
    
    
    (1,230,686
    )
    
    
    (1,176,406
    )Accumulated other comprehensive income
    
    
    18,598
    
    
    
    4,349Total stockholders equity
    
    
    1,125,469
    
    
    
    1,151,299Total liabilities and stockholders equity
    
    $
    1,946,322
    
    
    $
    2,151,092
  2




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3COM CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Six Months EndedNovember 30,(In thousands)
    
    2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (54,278
    )
    
    $
    (17,584
    )Adjustments to reconcile net loss to cash used in
operating activities:Depreciation and amortization
    
    
    69,279
    
    
    
    39,789Stock-based compensation charges
    
    
    9,868
    
    
    
    10,237Loss (gain) on property and equipment disposals
    
    
    155
    
    
    
    (10,920
    )Gain on investments, net
    
    
    (185
    )
    
    
    (1,801
    )Minority interest in income of consolidated joint venture
    
    
    
    
    
    
    23,915Deferred income taxes
    
    
    (1,234
    )
    
    
    (5,907
    )Changes in assets and liabilities:Accounts receivable
    
    
    (10,418
    )
    
    
    (53,149
    )Inventories
    
    
    16,863
    
    
    
    3,349Other assets
    
    
    113
    
    
    
    19,925Accounts payable
    
    
    (14,642
    )
    
    
    (30,897
    )Other liabilities
    
    
    (68,080
    )
    
    
    18,035Net cash used in operating activities
    
    
    (52,559
    )
    
    
    (5,008
    )Cash flows from investing activities:Purchases of investments
    
    
    
    
    
    
    (224,999
    )Proceeds from maturities and sales of investments
    
    
    442
    
    
    
    269,932Purchases of property and equipment
    
    
    (9,746
    )
    
    
    (16,118
    )Proceeds from sale of property and equipment
    
    
    864
    
    
    
    33,108Net cash (used in) provided by investing activities
    
    
    (8,440
    )
    
    
    61,923Cash flows from financing activities:Issuances of common stock
    
    
    5,656
    
    
    
    12,635Repurchases of common stock
    
    
    (1,322
    )
    
    
    (4,708
    )Repayment of long term debt
    
    
    (94,000
    )
    
    
    Dividend paid to minority interest shareholder
    
    
    
    
    
    
    (40,785
    )Net cash used in financing activities
    
    
    (89,666
    )
    
    
    (32,858
    )Effect of exchange rate changes on cash and equivalents
    
    
    10,591
    
    
    
    4,026Net change in cash and equivalents during period
    
    
    (140,074
    )
    
    
    28,083Cash and equivalents, beginning of period
    
    
    559,217
    
    
    
    501,097Cash and equivalents, end of period
    
    $
    419,143
    
    
    $
    529,180
  3




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3COM CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 1. BASIS OF PRESENTATION
   Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109
 Recently issued accounting pronouncements
   4




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Accounting for NonRefundable Advance Payments for Goods
or Services Received for Use in Future Research and Development Activities
 NOTE 2. STOCK-BASED COMPENSATION
    5




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Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    EndedNovember 30,
    
    November 30,
    
    November 30,
    
    November 30,2007
    
    2006
    
    2007
    
    2006Employee stock options:Volatility
    
    
    42.9
    %
    
    
    42.7
    %
    
    
    40.5
    %
    
    
    42.7
    %Risk-free interest rate
    
    
    3.9
    %
    
    
    4.7
    %
    
    
    4.7
    %
    
    
    4.7
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected life (years)
    
    
    3.8
    
    
    
    4.0
    
    
    
    3.8
    
    
    
    4.0Fair value per option
    
    $
    1.46
    
    
    $
    1.67
    
    
    $
    1.49
    
    
    $
    1.67Employee Stock Purchase Plan:Volatility
    
    
    61.1
    %
    
    
    49.2
    %
    
    
    61.1
    %
    
    
    49.2
    %Risk-free interest rate
    
    
    4.0
    %
    
    
    5.1
    %
    
    
    4.0
    %
    
    
    5.1
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected life (years)
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Fair value per option
    
    $
    1.60
    
    
    $
    1.27
    
    
    $
    1.60
    
    
    $
    1.27
  Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded November
    
    Ended November
    
    Ended November
    
    Ended November30, 2007
    
    30, 2006
    
    30, 2007
    
    30, 2006Cost of sales
    
    $
    523
    
    
    $
    383
    
    
    $
    907
    
    
    $
    702Sales and marketing
    
    
    1,418
    
    
    
    1,568
    
    
    
    2,393
    
    
    
    2,805Research and development
    
    
    973
    
    
    
    1,545
    
    
    
    1,694
    
    
    
    2,713General and administrative
    
    
    3,092
    
    
    
    3,454
    
    
    
    4,874
    
    
    
    4,017Stock-based compensation
expense before tax
    
    $
    6,006
    
    
    $
    6,950
    
    
    $
    9,868
    
    
    $
    10,237
  WeightedaverageNumber of
    
    
    exerciseshares
    
    
    priceOutstanding May 31, 2007
    
    
    52,280
    
    
    $
    5.23Granted
    
    
    1,455
    
    
    
    4.08Exercised
    
    
    (1,649
    )
    
    
    2.03Cancelled
    
    
    (3,914
    )
    
    
    6.10Outstanding November 30, 2007
    
    
    48,172
    
    
    $
    5.24Exercisable
    
    
    25,943
    
    
    $
    5.86Weighted
average grant-date fair value of options granted
    
    
    
    
    
    $
    1.49
   6




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WeightedWeighted
    
    AverageNumber of
    
    average
    
    Remaining
    
    AggregateShares
    
    Grant-Date
    
    Contractual
    
    Intrinsic Value(in thousands)
    
    Fair Value
    
    Life (in years)
    
    (in thousands)Vested and expected
to vest at November
30, 2007
    
    
    37,733
    
    
    $
    5.43
    
    
    
    4.3
    
    
    $
    10,845
  WeightedNumber of
    
    
    averageShares
    
    
    Grant-Date(unvested)
    
    
    Fair ValueOutstanding May 31, 2007
    
    
    2,403
    
    
    $
    4.33Granted
    
    
    790
    
    
    
    3.90Vested
    
    
    (576
    )
    
    
    4.37Forfeited
    
    
    (275
    )
    
    
    4.15Outstanding November 30, 2007
    
    
    2,342
    
    
    $
    4.20
   Number ofShares(unvested)Outstanding May 31, 2007
    
    
    3,111Granted
    
    
    4,427Vested
    
    
    (632
    )Forfeited
    
    
    (364
    )Outstanding November 30, 2007
    
    
    6,542
   Employee Stock Purchase Plan.
 7




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NOTE 3. ACQUISITIONS
  NOTE 4. RESTRUCTURING CHARGES
     Fiscal 2008 Actions
  EmployeeSeparation Expense
    
    
    TotalBalance as of May 31, 2007
    
    $
    
    
    
    $
    Provisions
    
    
    3,435
    
    
    
    3,435Payments
    
    
    (1,164
    )
    
    
    (1,164
    )Balance as of November 30, 2007
    
    $
    2,271
    
    
    $
    2,271
 8




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Fiscal 2007 Actions
  Employee
    
    
    Facilities-
    
    
    OtherSeparation
    
    
    related
    
    
    RestructuringExpense
    
    
    Charges
    
    
    Costs
    
    
    TotalBalance as of May 31, 2007
    
    $
    1,330
    
    
    $
    264
    
    
    $
    
    
    
    $
    1,594Provisions (benefits)
    
    
    (132
    )
    
    
    (15
    )
    
    
    53
    
    
    
    (94
    )Payments
    
    
    (863
    )
    
    
    (120
    )
    
    
    (53
    )
    
    
    (1,036
    )Balance as of November 30,
2007
    
    $
    335
    
    
    $
    129
    
    
    $
    
    
    
    $
    464
   Fiscal 2001 through 2006 Actions
  Employee
    
    
    
    
    
    
    OtherSeparation
    
    
    Facilities-
    
    
    RestructuringExpense
    
    
    related Charges
    
    
    Costs
    
    
    TotalBalance as of May 31, 2007
    
    $
    303
    
    
    $
    1,479
    
    
    $
    
    
    
    $
    1,782Provisions (benefits)
    
    
    (3
    )
    
    
    231
    
    
    
    3
    
    
    
    231Payments
    
    
    
    
    
    
    (830
    )
    
    
    (3
    )
    
    
    (833
    )Balance as of November 30,
2007
    
    $
    300
    
    
    $
    880
    
    
    $
    
    
    
    $
    1,180
   9




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NOTE 5. INCOME TAXES
      NOTE 6. COMPREHENSIVE (LOSS) INCOME
  Three Months Ended
    
    
    Six Months EndedNovember 30,
    
    
    November,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (35,624
    )
    
    $
    (3,516
    )
    
    $
    (54,278
    )
    
    $
    (17,584
    )Other comprehensive income:Net unrealized gain (loss) on investments
    
    
    
    
    
    
    965
    
    
    
    (210
    )
    
    
    2,004Change in accumulated translation
adjustments
    
    
    7,622
    
    
    
    2,985
    
    
    
    14,250
    
    
    
    3,667Total comprehensive (loss) income
    
    $
    (28,002
    )
    
    $
    434
    
    
    $
    (40,238
    )
    
    $
    (11,913
    )
 10




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NOTE 7. NET LOSS PER SHARE
  NOTE 8. INVENTORIES
  November 30,
    
    
    May 31,2007
    
    
    2007Finished goods
    
    $
    58,495
    
    
    $
    61,857Work-in-process
    
    
    6,588
    
    
    
    7,143Raw materials
    
    
    28,705
    
    
    
    38,988Total
    
    $
    93,788
    
    
    $
    107,988
 NOTE 9. INTANGIBLE ASSETS, NET
  November 30, 2007
    
    
    May 31, 2007Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedGross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetExisting technology
    
    $
    374,384
    
    
    $
    (165,883
    )
    
    $
    208,501
    
    
    $
    387,233
    
    
    $
    (148,641
    )
    
    $
    238,592Trademark
    
    
    55,502
    
    
    
    
    
    
    
    55,502
    
    
    
    55,500
    
    
    
    
    
    
    
    55,500Huawei non-compete
agreement
    
    
    33,370
    
    
    
    (11,066
    )
    
    
    22,304
    
    
    
    33,000
    
    
    
    (61
    )
    
    
    32,939OEM agreement
    
    
    24,140
    
    
    
    (3,985
    )
    
    
    20,155
    
    
    
    23,800
    
    
    
    (22
    )
    
    
    23,778Maintenance contracts
    
    
    19,000
    
    
    
    (8,972
    )
    
    
    10,028
    
    
    
    19,000
    
    
    
    (7,389
    )
    
    
    11,611Other
    
    
    22,008
    
    
    
    (15,820
    )
    
    
    6,188
    
    
    
    21,924
    
    
    
    (13,055
    )
    
    
    8,869Total
    
    $
    528,404
    
    
    $
    (205,726
    )
    
    $
    322,678
    
    
    $
    540,457
    
    
    $
    (169,168
    )
    
    $
    371,289
  NOTE 10. ACCRUED WARRANTY
  11




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Six Months EndedNovember 30,2007
    
    
    2006Accrued warranty, beginning of period
    
    $
    40,596
    
    
    $
    41,791Cost of warranty claims processed during the period
    
    
    (21,377
    )
    
    
    (26,481
    )Provision for warranties related to products sold during the period
    
    
    20,699
    
    
    
    23,671Accrued warranty, end of period
    
    $
    39,918
    
    
    $
    38,981
 NOTE 11. LONG-TERM DEBT
    Tranche A
    
    Tranche B2009
    
    
    46,000
    
    
    
    2,0002010
    
    
    46,000
    
    
    
    2,0002011
    
    
    46,000
    
    
    
    2,0002012
    
    
    
    
    
    
    20,0002013
    
    
    
    
    
    
    172,000
   NOTE 12. SEGMENT INFORMATION
  12




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Three Months Ended November 30, 2007Tipping
    
    
    
    
    
    Eliminations/(in thousands)
    
    H3C
    
    DVBU
    
    Point
    
    Corp
    
    Other
    
    TotalRevenue
    
    $
    182,823
    
    
    $
    139,879
    
    
    $
    25,785
    
    
    
    
    
    
    $
    (30,686
    )a
    
    $
    317,801Gross profit
    
    
    100,673
    
    
    
    40,125
    
    
    
    17,536
    
    
    
    (100
    )b
    
    
    (6,114
    )c
    
    
    152,120Operating expense
    
    
    72,926
    
    
    
    49,610
    
    
    
    16,989
    
    
    
    11,436
    b
    
    
    42,490
    d
    
    
    193,451Operating income (loss)
    
    $
    27,747
    
    
    $
    (9,485
    )
    
    $
    547
    
    
    $
    (11,536
    )
    
    $
    (48,604
    )
    
    $
    (41,331
    )
 Three Months Ended November 30, 2006Tipping
    
    
    
    
    
    Eliminations/(in thousands)
    
    H3C
    
    DVBU
    
    Point
    
    Corp
    
    Other
    
    TotalRevenue
    
    $
    190,291
    
    
    $
    144,268
    
    
    $
    22,257
    
    
    
    
    
    
    $
    (23,840
    )a
    
    $
    332,976Gross profit
    
    
    90,715
    
    
    
    45,377
    
    
    
    15,042
    
    
    
    (600
    )b
    
    
    (383
    )c
    
    
    150,151Operating expense
    
    
    61,051
    
    
    
    51,884
    
    
    
    17,058
    
    
    
    10,750
    b
    
    
    18,788
    d
    
    
    159,531Operating income (loss)
    
    $
    29,664
    
    
    $
    (6,507
    )
    
    $
    (2,016
    )
    
    $
    (11,350
    )
    
    $
    (19,171
    )
    
    $
    (9,380
    )
 Six Months Ended November 30, 2007Tipping(in thousands)
    
    H3C
    
    DVBU
    
    Point
    
    Corp
    
    Eliminations/Other
    
    TotalRevenue
    
    $
    369,751
    
    
    $
    279,455
    
    
    $
    51,253
    
    
    
    
    
    
    $
    (63,224
    )a
    
    $
    637,235Gross profit
    
    
    195,463
    
    
    
    83,667
    
    
    
    34,162
    
    
    
    (210
    )b
    
    
    (12,026
    )c
    
    
    301,056Operating expense
    
    
    140,737
    
    
    
    97,812
    
    
    
    34,168
    
    
    
    22,957
    b
    
    
    72,400
    d
    
    
    368,074Operating income (loss)
    
    $
    54,726
    
    
    $
    (14,145
    )
    
    $
    (6
    )
    
    $
    (23,167
    )
    
    $
    (84,426
    )
    
    $
    (67,018
    )
 Six Months Ended November 30, 2006Tipping(in thousands)
    
    H3C
    
    DVBU
    
    Point
    
    Corp
    
    Eliminations/Other
    
    TotalRevenue
    
    $
    360,259
    
    
    $
    281,336
    
    
    $
    41,012
    
    
    
    
    
    
    $
    (49,487
    )a
    
    $
    633,120Gross profit
    
    
    170,799
    
    
    
    89,921
    
    
    
    27,252
    
    
    
    (690
    )b
    
    
    (702
    )c
    
    
    286,580Operating expense
    
    
    120,839
    
    
    
    107,504
    
    
    
    33,392
    
    
    
    21,231
    b
    
    
    33,862
    d
    
    
    316,828Operating income (loss)
    
    $
    49,960
    
    
    $
    (17,583
    )
    
    $
    (6,140
    )
    
    $
    (21,921
    )
    
    $
    (34,564
    )
    
    $
    (30,248
    )
 
 a
    
    - Represents eliminations for inter-company revenue during the respective periods.b
    
    - Represents costs not directly attributable to any operating business segment.c
    
    - Includes stock based compensation in all periods plus purchase accounting inventory related
adjustments as
applicable.d
    
    - Includes stock-based compensation, amortization and restructuring in all periods and
acquisition related expenses
as applicable. 13




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Three Months Ended
    
    
    Six Months EndedNovember 30,
    
    
    November 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Networking
    
    $
    255,533
    
    
    
    80
    %
    
    $
    272,852
    
    
    
    82
    %
    
    $
    517,509
    
    
    
    81
    %
    
    $
    516,885
    
    
    
    82
    %Security
    
    
    35,062
    
    
    
    12
    %
    
    
    31,582
    
    
    
    9
    %
    
    
    66,545
    
    
    
    11
    %
    
    
    57,044
    
    
    
    9
    %Voice
    
    
    16,657
    
    
    
    5
    %
    
    
    16,549
    
    
    
    5
    %
    
    
    32,978
    
    
    
    5
    %
    
    
    32,498
    
    
    
    5
    %Services
    
    
    9,953
    
    
    
    3
    %
    
    
    8,568
    
    
    
    3
    %
    
    
    18,983
    
    
    
    3
    %
    
    
    16,919
    
    
    
    3
    %Legacy connectivity
products
    
    
    596
    
    
    
    
    %
    
    
    3,425
    
    
    
    1
    %
    
    
    1,220
    
    
    
    
    %
    
    
    9,774
    
    
    
    1
    %Total
    
    $
    317,801
    
    
    
    
    
    
    $
    332,976
    
    
    
    
    
    
    $
    637,235
    
    
    
    
    
    
    $
    633,120
 NOTE 13. GEOGRAPHIC INFORMATION
  Three Months Ended November 30,
    
    
    Six Months Ended November 30,2007
    
    
    2006
    
    
    2007
    
    
    2006China
    
    $
    143,107
    
    
    $
    158,276
    
    
    $
    289,861
    
    
    $
    290,785Europe, Middle East, and Africa
    
    
    73,209
    
    
    
    70,933
    
    
    
    142,871
    
    
    
    140,467North America
    
    
    52,589
    
    
    
    55,159
    
    
    
    112,607
    
    
    
    113,582Asia Pacific (except China)
    
    
    25,865
    
    
    
    28,312
    
    
    
    49,247
    
    
    
    52,671Latin and South America
    
    
    23,031
    
    
    
    20,296
    
    
    
    42,649
    
    
    
    35,615Total
    
    $
    317,801
    
    
    $
    332,976
    
    
    $
    637,235
    
    
    $
    633,120
  NOTE 14. LITIGATION
   14




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15




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NOTE 15. PROPOSED ACQUISITION BY AFFILIATES OF BAIN CAPITAL  PARTNERS LLC
      
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 INTRODUCTION
  BUSINESS OVERVIEW
  16




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##### Table of Contents



§
    
    Networking;§
    
    Security;§
    
    Voice;§
    
    Services; and§
    
    Legacy Connectivity Products.
  §
    
    The proposed acquisition of the Company by affiliates of Bain Capital Partners;§
    
    the formation and subsequent 100 percent acquisition of our Chinese joint venture H3C;§
    
    financing a portion of the purchase price for our acquisition of H3C by entering into
a $430 million senior secured credit agreement;§
    
    restructuring activities, which included outsourcing of information technology, all
manufacturing activity in our DVBU segment, significant headcount reductions in other
functions, and selling excess facilities;§
    
    significant changes to our executive leadership;§
    
    acquiring TippingPoint Technologies, Inc.; and§
    
    realigning our DVBU sales and marketing channels and expenditures.
  Significant Events
 Proposed Acquisition of the Company
  H3C
   17




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##### Table of Contents



New Products
  Business Environment and Future Trends
  §
    
    Intense competition in the market for higher-end, enterprise core routing and switching products;§
    
    Aggressive product pricing by competitors targeted at gaining share in market segments where we
have had a strong position historically, such as the small to medium-sized enterprise market;
and§
    
    The advanced nature and ready availability of merchant silicon, which allows low-end competitors
to deliver competitive products and makes it increasingly difficult for us to differentiate our
products.
     18




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##### Table of Contents



Summary of Three Months Ended November 30, 2007 Financial Performance
 §
    
    Our sales in the three months ended November 30, 2007 were $317.8 million, compared to
sales of $333.0 million in the three months ended November 20, 2006, a decrease of $15.2
million, or 4.6 percent.§
    
    Our gross margin improved to 47.9 percent in the three months ended November 30, 2007
from 45.1 percent in the three months ended November 30, 2006.§
    
    Our operating expenses in the three months ended November 30, 2007 were $193.5 million,
compared to $159.5 million in the three months ended November 30, 2006, a net increase of
$34.0 million, or 21.3 percent.§
    
    Our net loss in the three months ended November 30, 2007 was $35.6 million, compared to
a net loss of $3.5 million in the three months ended November 30, 2006.§
    
    Our balance sheet contains cash and equivalents of $419.1 million as of November 30,
2007, compared to cash and equivalents of $559.2 million at June 1, 2007 (the end of fiscal
2007). The balance sheet also includes debt of $336 million with $48 million classified as
a current liability as of November 30, 2007 compared with debt of $430 million with $94
million classified as a current liability at the end of fiscal 2007.
 Summary of Six Months Ended November 30, 2007 Financial Performance
 §
    
    Our sales in the six months ended November 30, 2007 were $637.2 million, compared to
sales of $633.1 million in the six months ended November 20, 2006, an increase of $4.1
million, or 0.6 percent.§
    
    Our gross margin improved to 47.2 percent in the six months ended November 30, 2007 from
45.3 percent in the six months ended November 30, 2006.§
    
    Our operating expenses in the six months ended November 30, 2007 were $368.1 million,
compared to $316.8 million in the six months ended November 30, 2006, a net increase of
$51.3 million, or 16.2 percent.§
    
    Our net loss in the six months ended November 30, 2007 was $54.3 million, compared to
a net loss of $17.6 million in the six months ended November 30, 2006.
 CRITICAL ACCOUNTING POLICIES
   19




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RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED NOVEMBER 30, 2007 AND 2006
  Three Months Ended
    
    
    Six Months EndedNovember 30
    
    
    November 302007
    
    
    2006
    
    
    2007
    
    
    2006Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    52.1
    
    
    
    54.9
    
    
    
    52.8
    
    
    
    54.7Gross profit margin
    
    
    47.9
    
    
    
    45.1
    
    
    
    47.2
    
    
    
    45.3Operating expenses:Sales and marketing
    
    
    25.4
    
    
    
    22.9
    
    
    
    24.4
    
    
    
    24.2Research and development
    
    
    16.4
    
    
    
    14.4
    
    
    
    16.4
    
    
    
    15.2General and administrative
    
    
    9.8
    
    
    
    6.7
    
    
    
    8.2
    
    
    
    6.7Amortization and write-down of intangible assets
    
    
    8.3
    
    
    
    3.7
    
    
    
    8.2
    
    
    
    3.9Restructuring charges
    
    
    1.0
    
    
    
    0.2
    
    
    
    0.5
    
    
    
    0.1Total operating expenses
    
    
    60.9
    
    
    
    47.9
    
    
    
    57.7
    
    
    
    50.1Operating loss
    
    
    (13.0
    )
    
    
    (2.8
    )
    
    
    (10.5
    )
    
    
    (4.8
    )Gain (loss) on investments, net
    
    
    0.0
    
    
    
    (0.3
    )
    
    
    0.1
    
    
    
    0.2Interest (expense) income, net
    
    
    (1.3
    )
    
    
    3.4
    
    
    
    (1.2
    )
    
    
    3.4Other income, net
    
    
    3.3
    
    
    
    3.8
    
    
    
    3.5
    
    
    
    2.7(Loss) income before income taxes and minority interest
    
    
    (11.0
    )
    
    
    4.1
    
    
    
    (8.1
    )
    
    
    1.5Income tax provision
    
    
    (0.2
    )
    
    
    (0.7
    )
    
    
    (0.4
    )
    
    
    (0.6
    )Minority interest in income of consolidated joint venture
    
    
    
    
    
    
    (4.5
    )
    
    
    
    
    
    
    (3.8
    )Net loss
    
    
    (11.2
    )%
    
    
    (1.1
    )%
    
    
    (8.5
    )%
    
    
    (2.9
    )%
 20




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##### Table of Contents



Sales
  Three Months Ended
    
    Six Months EndedNovember 30,
    
    November 30,2007
    
    2006
    
    2007
    
    2006H3C
    
    $
    182.8
    
    
    $
    190.3
    
    
    $
    369.7
    
    
    $
    360.3DVBU
    
    
    139.9
    
    
    
    144.3
    
    
    
    279.5
    
    
    
    281.3TippingPoint
    
    
    25.8
    
    
    
    22.3
    
    
    
    51.3
    
    
    
    41.0Intercompany
eliminations and other
    
    
    (30.7
    )
    
    
    (23.9
    )
    
    
    (63.3
    )
    
    
    (49.5
    )Consolidated sales
    
    $
    317.8
    
    
    $
    333.0
    
    
    $
    637.2
    
    
    $
    633.1
   .
    Three Months Ended
    
    
    Six Months EndedNovember 30
    
    
    November 302007
    
    
    2006
    
    
    2007
    
    
    2006Networking
    
    $
    255.5
    
    
    
    80
    %
    
    $
    272.9
    
    
    
    82
    %
    
    $
    517.5
    
    
    
    81
    %
    
    $
    516.9
    
    
    
    82
    %Security
    
    
    35.1
    
    
    
    12
    %
    
    
    31.6
    
    
    
    9
    %
    
    
    66.5
    
    
    
    11
    %
    
    
    57.0
    
    
    
    9
    %Voice
    
    
    16.7
    
    
    
    5
    %
    
    
    16.5
    
    
    
    5
    %
    
    
    33.0
    
    
    
    5
    %
    
    
    32.5
    
    
    
    5
    %Services
    
    
    9.9
    
    
    
    3
    %
    
    
    8.6
    
    
    
    3
    %
    
    
    19.0
    
    
    
    3
    %
    
    
    16.9
    
    
    
    3
    %Connectivity Products
    
    
    0.6
    
    
    
    
    %
    
    
    3.4
    
    
    
    1
    %
    
    
    1.2
    
    
    
    
    %
    
    
    9.8
    
    
    
    1
    %Total
    
    $
    317.8
    
    
    
    100
    %
    
    $
    333.0
    
    
    
    100
    %
    
    $
    637.2
    
    
    
    100
    %
    
    $
    633.1
    
    
    
    100
    %
 21




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®
 ®
   Gross Margin
  Three Months Ended
    
    
    Six Months EndedNovember 30,
    
    
    November 30,2007
    
    
    2006
    
    
    2007
    
    
    2006H3C
    
    
    55.1
    %
    
    
    47.7
    %
    
    
    52.9
    %
    
    
    47.4
    %DVBU
    
    
    28.7
    %
    
    
    31.5
    %
    
    
    29.9
    %
    
    
    32.0
    %TippingPoint
    
    
    68.0
    %
    
    
    67.6
    %
    
    
    66.7
    %
    
    
    66.4
    %Intercompany eliminations and other
    
    
    20.3
    %
    
    
    4.1
    %
    
    
    19.4
    %
    
    
    2.8
    %Gross Margin
    
    
    47.9
    %
    
    
    45.1
    %
    
    
    47.2
    %
    
    
    45.3
    %
     22




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##### Table of Contents



Operating Expenses
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedNovember 30,
    
    
    Change
    
    
    November 30,
    
    
    Change(dollars in millions)
    
    2007
    
    
    2006
    
    
    $
    
    
    %
    
    
    2007
    
    
    2006
    
    
    $
    
    
    %Sales and marketing
    
    $
    80.8
    
    
    $
    76.2
    
    
    $
    4.6
    
    
    
    6
    %
    
    $
    155.2
    
    
    $
    153.3
    
    
    $
    1.9
    
    
    
    1
    %Research and development
    
    
    52.2
    
    
    
    48.2
    
    
    
    4.0
    
    
    
    8
    %
    
    
    104.5
    
    
    
    96.0
    
    
    
    8.5
    
    
    
    9
    %General and administrative
    
    
    31.1
    
    
    
    22.3
    
    
    
    8.8
    
    
    
    39
    %
    
    
    52.5
    
    
    
    42.6
    
    
    
    9.9
    
    
    
    23
    %Amortization
    
    
    26.3
    
    
    
    12.2
    
    
    
    14.1
    
    
    
    116
    %
    
    
    52.3
    
    
    
    24.4
    
    
    
    27.9
    
    
    
    114
    %Restructuring
    
    
    3.1
    
    
    
    0.6
    
    
    
    2.5
    
    
    
    417
    %
    
    
    3.6
    
    
    
    0.5
    
    
    
    3.1
    
    
    
    620
    %Total
    
    $
    193.5
    
    
    $
    159.5
    
    
    $
    34.0
    
    
    
    21
    %
    
    $
    368.1
    
    
    $
    316.8
    
    
    $
    51.3
    
    
    
    16
    %
 Sales and Marketing.
 Research and Development.
 eneral and Administrative.
 Amortization.
 Restructuring Charges
   Gain
(loss) on Investments, Net
  Interest Expense/Income, Net
  23




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Other Income, Net
  Income Tax Provision
   Minority Interest of Huawei in the Income of Consolidated Huawei-3Com Joint Venture
 
 Net Loss
  24




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
  Six Months EndedNovember 30,(In millions)
    
    2007
    
    
    2006Cash and equivalents, beginning of period
    
    $
    559.2
    
    
    $
    501.1Net cash used in operating activities
    
    
    (52.6
    )
    
    
    (5.0
    )Net cash (used in) provided by investing activities
    
    
    (8.4
    )
    
    
    61.9Net cash used in financing activities
    
    
    (89.7
    )
    
    
    (32.8
    )Other
    
    
    10.6
    
    
    
    4.0Cash and equivalents, end of period
    
    $
    419.1
    
    
    $
    529.2
        EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
      25




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Accounting for NonRefundable Advance Payments for Goods
or Services Received for Use in Future Research and Development Activities
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
   26




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  Risk Related to Announced Acquisition by an entity controlled by
affiliates of Bain Capital Partners
   
    
    managements and our employees attention from our day-to-day business may be diverted
because matters related to the proposed acquisition may require substantial commitments of
their time and resources;
    
    we may lose key employees;
    
    our relationships with customers and vendors may be substantially disrupted as a result
of uncertainties with regard to our business and prospects;
    
    certain costs related to the proposed acquisition, such as legal and accounting fees and
reimbursement of certain expenses, are payable by us whether or not the proposed
acquisition is completed;
    
    under certain circumstances, if the proposed acquisition is not completed, we may be
required to pay a termination (break-up) fee of up to $66 million; and
    
    the market price of shares of our common stock may decline to the extent that the
current market price of those shares reflects a market assumption that the proposed
acquisition will be completed.
   27




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Risks Related to Historical Losses, Financial Condition and Substantial Indebtedness
 We have incurred significant net losses in recent fiscal periods, including $35.6 million for the
quarter ended November 30, 2007 and $3.5 million for the quarter ended November 30, 2006 and we may
not be able to return to profitability.
  
    
    declining sales due to price competition and reduced incoming order rate;
    
    operating expenses that, as a percentage of sales, have exceeded our desired financial
model;
    
    management changes;
    
    disruptions and expenses resulting from our workforce reductions, management changes and
employee attrition;
    
    risk of increased excess and obsolete inventories; and
    
    interest expense resulting from our senior secured loan.
  We may not be able to compensate for lower sales or unexpected cash outlays with cost reductions
sufficient to generate positive net income or cash flow.
   Efforts to reduce operating expenses have involved, and could involve further, workforce
reductions, closure of offices and sales or discontinuation of businesses, leading to reduced sales
and other disruptions in our business; if these efforts are not successful, we may experience
higher expenses than we desire.
  28




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Our substantial debt could adversely affect our financial condition; and the related debt service
obligations may adversely affect our cash flow and ability to invest in and grow our businesses.
    
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    limit our ability to obtain additional financing;
    
    require the dedication of a substantial portion of any cash flow from operations to the
payment of principal of, and interest on, our indebtedness, thereby reducing the
availability of such cash flow to fund growth, working capital, capital expenditures and
other general corporate purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and our
industry; and
    
    place us at a competitive disadvantage relative to our competitors with less debt.
 The restrictions imposed by the terms of our senior secured loan facility could adversely impact
our ability to invest in and grow our H3C business.
  An adverse change in the interest rates for our borrowings could adversely affect our financial
condition.
  29




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##### Table of Contents



Rating downgrades may make it more expensive for us to refinance our debt or borrow money.
  Risks Related to H3C Segment and Dependence Thereon
 We are significantly dependent on our H3C segment; if H3C is not successful we will likely
experience a material adverse impact to our business, business prospects and operating results.
  Sales from our H3C segment, and therefore in China, constitute a material portion of our total
sales, and our business, financial condition and results of operations will to a significant degree
be subject to economic, political and social events in the PRC.
  Our H3C segment is dependent on Huawei Technologies in several material respects, including as an
important customer; should Huawei reduce its business with H3C, our business will likely be
materially adversely affected.
  30




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##### Table of Contents



We must execute on a global strategy to leverage the benefits of our H3C acquisition, including
integration activities we determine to undertake; if we are not successful in these efforts, our
business will suffer.
   Risks Related to Personnel
 Our success is dependent on continuing to hire and retain qualified managers and other personnel,
including at our H3C segment, and reducing senior management turnover in our other segments; if we
are not successful in attracting and retaining these personnel, our business will suffer.
   Risks Related to Competition
 If we do not respond effectively to increased competition caused by industry volatility and
consolidation our business could be harmed.
  
    
    industry volatility resulting from rapid product development cycles;
    
    increasing price competition due to maturation of basic networking technologies;
    
    industry consolidation resulting in competitors with greater financial, marketing, and
technical resources; and
    
    the presence of existing competitors with greater financial resources together with the
potential emergence of new competitors with lower cost structures and more competitive
offerings.
 31




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Our competition with Huawei in the enterprise networking market could have a material adverse
effect on our sales and our results of operations; and after a contractual non-compete period
expires, Huawei can increase its level of competition, which would likely materially and adversely
affect our business.
    Risks Related to Business and Technology Strategy
 We may not be successful at identifying and responding to new and emerging market and product
opportunities, or at responding quickly enough to technologies or markets that are in decline.
  
    
    identify new market and product opportunities;
    
    predict which technologies and markets will see declining demand;
    
    develop and introduce new products and solutions in a timely manner;
    
    gain market acceptance of new products and solutions, particularly in targeted emerging
markets; and
    
    rapidly and efficiently transition our customers from older to newer enterprise
networking technologies.
  
    
    there is a delay in introducing new products;
    
    we lose certain channels of distribution or key partners;
    
    our products do not satisfy customers in terms of features, functionality or quality; or
    
    our products cost more to produce than we expect.
  32




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We expect to utilize strategic relationships and other alliances as key elements in our strategy.
If we are not successful in forming desired ventures and alliances or if such ventures and
alliances are not successful, our ability to achieve our growth and profitability goals could be
adversely affected.
   Our strategy of outsourcing functions and operations may fail to reduce cost and may disrupt our
operations.
   Our reliance on industry standards, technological change in the marketplace, and new product
initiatives may cause our sales to fluctuate or decline.
  
    
    the convergence of technologies, such as voice, data and video on single, secure
networks;
    
    the timely adoption and market acceptance of industry standards, and timely resolution
of conflicting U.S. and international industry standards; and
    
    our ability to influence the development of emerging industry standards and to introduce
new and enhanced products that are compatible with such standards.
  33




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##### Table of Contents



We focus on enterprise networking, and our results of operations may fluctuate based on factors
related entirely to conditions in this market.
  Risks Related to Operations and Distribution Channels
 A significant portion of our DVBU and TippingPoint sales are derived from a small number of
distributors. If any of these partners reduces its business with us, our business could be
seriously harmed.
  We depend on distributors who maintain inventories of our products. If the distributors reduce
their inventories of our products, our sales could be adversely affected.
  If we are unable to successfully develop relationships with system integrators, service providers,
and enterprise VARs, our sales may be negatively affected.
  We may pursue acquisitions of other companies that, if not successful, could adversely affect our
business, financial position and results of operations.
  34




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##### Table of Contents



We may be unable to manage our supply chain successfully, which would adversely impact our sales,
gross margin and profitability.
  
    
    in the past, some key components have had limited availability;
    
    as integration of networking features on a reduced number of computer chips continues,
we are increasingly facing competition from parties who are our suppliers;
    
    our ability to accurately forecast demand is diminished;
    
    our reliance on, and long-term arrangements with, third-party manufacturers places much
of the supply chain process out of our direct control and heightens the need for accurate
forecasting and reduces our ability to transition quickly to alternative supply chain
strategies; and
    
    we may experience disruptions to our logistics.
     Our strategies to outsource the majority of our manufacturing requirements to contract
manufacturers may not result in meeting our cost, quality or performance standards. The inability
of any contract manufacturer to meet our cost, quality or performance standards could adversely
affect our sales and overall results from operations.
   35




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If we fail to adequately evolve our financial and managerial control and reporting systems and
processes, including the management of our H3C segment, our ability to manage and grow our business
will be negatively affected.
  Risks Related to our Operations in the Peoples Republic of China
 Chinas governmental and regulatory reforms and changing economic environment may impact our
ability to do business in China.
  
    
    the promulgation of new laws and regulations and the interpretation of those laws and
regulations;
    
    enforcement and application of rules and regulations by the Chinese government;
    
    the introduction of measures to control inflation or stimulate growth; or
    
    any actions that limit our ability to develop, manufacture, import or sell our products
in China, or to finance and operate our business in China.
  Uncertainties with respect to the Chinese legal system may adversely affect us.
  If PRC tax benefits available to H3C are reduced or repealed, our business could suffer.
  36




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##### Table of Contents



H3C is subject to restrictions on paying dividends and making other payments to us.
  We are subject to risks relating to currency rate fluctuations and exchange controls and we do not
hedge this risk in China.
  Risks Related to Intellectual Property
 If our products contain undetected software or hardware errors, we could incur significant
unexpected expenses and could lose sales.
  37




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We may need to engage in complex and costly litigation in order to protect, maintain or enforce our
intellectual property rights; in some jurisdictions, such as China, our rights may not be as strong
as the rights we enjoy in the U.S.
   We may not be able to defend ourselves successfully against claims that we are infringing the
intellectual property rights of others.
   OSN, our new open source strategy, subjects us to additional intellectual property risks, such as
less control over development of certain technology that forms a part of this strategy and a higher
likelihood of litigation.
  38




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##### Table of Contents



Risks Related to the Trading Market
 Fluctuations in our operating results and other factors may contribute to volatility in the market
price of our stock.
  
    
    fluctuations in our quarterly results of operations and cash flow;
    
    changes in our cash and equivalents and short term investment balances;
    
    variations between our actual financial results and published analysts expectations;
and
    
    announcements by our competitors.
 
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number
    
    
    Averageof Shares
    
    
    Price PaidPeriod
    
    Purchased
    
    
    per ShareSeptember 1, 2007
through September
28, 2007
    
    
    277,808
    (1)
    
    $
    3.62September 29, 2007
through October 26,
2007
    
    
    5,620
    (1)
    
    
    4.88October 27, 2007
through November
30, 2007
    
    
    22,462
    (1)
    
    
    4.76Total
    
    
    305,890
    
    
    $
    3.73
 
 (1)
    
    Represents shares returned to us to satisfy tax withholding obligations that arose upon the
vesting of restricted stock awards. 39




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 (a)
    
    The Annual Meeting of Shareholders was held on September 26, 2007.(b)
    
    Each of the persons named in the Proxy Statement as a nominee for
director was elected and the proposals listed below were approved. The
following are the voting results of the proposals:
 Proposal I
    
    For
    
    Withheld
    
    Broker Non-VotesElection of Directors:Robert Y. L. Mao
    
    
    303,534,532
    
    
    
    19,840,179
    
    
    
    0Edgar Masri
    
    
    309,705,357
    
    
    
    13,669,354
    
    
    
    0Dominique Trempont
    
    
    310,547,591
    
    
    
    12,827,121
    
    
    
    0
  Proposal II
    
    For
    
    Against
    
    Abstain
    
    Broker Non-VotesTo ratify the
appointment of
Deloitte & Touche
LLP as our
registered
independent public
accounting firm for
the fiscal year
ending May 30,
2008:
    
    
    319,634,949
    
    
    
    3,251,724
    
    
    
    488,037
    
    
    
    0
 
 ITEM 5. OTHER INFORMATION
 Bonus Determination for Departed Named Executive Officer.
  Bonus Criteria  Dr. Shusheng Zheng
   
    
    3Com Consolidated Metrics (50% of total opportunity).The Committee set the following
financial goals, each of which can be met individually and independent of attainment of
other metrics (the weighting of each metric is in parens):
 
    
    3Com consolidated revenue (33-1/3%)
    
    3Com consolidated non-GAAP operating profit (33-1/3%) and
    
    3Com consolidated cash from operations (33-1/3%).
 
    
    For each metric described above, the Committee set goals for bonus at
three levels:
 
    
    threshold (the achievement of which will result in a bonus opportunity
amount of 50% of the target 3Com consolidated portion of the total bonus
amount);
    
    target (the achievement of which will result in a bonus opportunity
amount of 100% of the target 3Com consolidated portion of the total bonus
amount); and
    
    maximum (the achievement of which will result in a bonus opportunity
amount of 200% of the target 3Com consolidated portion of the total bonus
amount).
 
    
    H3C Segment Metrics (50% of total opportunity).The Committee set the following
financial goals, each of which can be met individually and independent of attainment of
other metrics (the weighting of each metric is in parens):
 
    
    H3C segment revenue (33-1/3%)
    
    H3C segment non-GAAP operating profit (33-1/3%) and
    
    H3C segment cash from operations (33-1/3%).
 
    
    For each metric described above, the Committee set goals for bonus at
four levels:
 
    
    threshold (the achievement of which will result in a bonus opportunity
amount of 50% of the target H3C segment portion of the total bonus amount);
    
    first level target (the achievement of which will result in a bonus
opportunity amount of 64% of the target H3C segment portion of the total
bonus amount);
    
    second level target (the achievement of which will result in a bonus
opportunity amount of 100% of the target H3C segment portion of the total
bonus amount);
    
    maximum (the achievement of which will result in a bonus opportunity
amount of 200% of the target H3C segment portion of the total bonus
amount).
 
 
    
    The actual bonus opportunity amount will be based on a sliding scale for achievement
attained in between specified levels, although for any single metric no amount will count
towards the bonus opportunity unless, at a minimum, the threshold achievement level is
attained for that metric.
    
    After the bonus opportunity amount is calculated under the methodology set forth above,
the Committee, in its discretion, may adjust the amount up or down by up to 25% based on
the Committees evaluation of performance during the period against criteria established by
the Committee.
 
 ITEM 6. EXHIBITS
 Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    
    
    
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    Filing Date
    
    Herewith2.1
    
    Master Separation and Distribution
Agreement between the Registrant and Palm,
Inc. effective as of December 13, 1999
    
    10-Q
    
    002-92053
    
    
    2.1
    
    
    4/4/002.2
    
    Indemnification and Insurance Matters
Agreement between the Registrant and Palm,
Inc.
    
    10-Q
    
    002-92053
    
    
    2.11
    
    
    4/4/002.3
    
    Agreement and Plan of Merger, dated
December 13, 2004, by and among the
Registrant, Topaz Acquisition Corporation
and TippingPoint Technologies, Inc.
    
    8-K
    
    000-12867
    
    
    2.1
    
    
    12/16/042.4
    
    Securities Purchase Agreement by and among
3Com Corporation, 3Com Technologies, Huawei
Technologies Co., Ltd. and Shenzen Huawei
Investment & Holding Co., Ltd., dated as of
October 28, 2005
    
    8-K/A
    
    000-12867
    
    
    2.1
    
    
    3/30/062.5
    
    Stock Purchase Agreement by and between
Shenzhen Huawei Investment & Holding Co.,
Ltd. and 3Com Technologies, dated as of
December 22, 2006
    
    8-K
    
    000-12867
    
    
    10.1
    
    
    12/27/062.6
    
    Agreement and Plan of Merger by and
 40




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##### Table of Contents



Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    
    
    
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    Filing Date
    
    Herewithamong
3Com Corporation, Diamond II Holdings Inc.
and Diamond II Acquisition Corp., dated
September 28, 2007
    
    8-K/A
    
    000-12867
    
    
    2.1
    
    
    9/28/073.1
    
    Corrected Certificate of Merger filed to
correct an error in the Certificate of
Merger
    
    10-Q
    
    002-92053
    
    
    3.4
    
    
    10/8/993.2
    
    Registrants Bylaws, as amended on March
23, 2005
    
    8-K
    
    000-12867
    
    
    3.1
    
    
    3/28/053.3
    
    Certificate of Designation of Rights,
Preferences and Privileges of Series A
Participating Preferred Stock
    
    10-Q
    
    000-12867
    
    
    3.6
    
    
    10/11/014.1
    
    Third Amended and Restated Preferred Shares
Rights Agreement, dated as of November 4,
2002 (Rights Agreement)
    
    8-A/A
    
    000-12867
    
    
    4.1
    
    
    11/27/024.2
    
    Amendment No. 1 to Rights Agreement, dated
as of September 28, 2007
    
    8-K
    
    000-12867
    
    
    4.1
    
    
    9/28/0710.1
    
    Amended and Restated 3Com Corporation 1984
Employee Stock Purchase Plan (Amended and
Restated as of September 26, 2007)*
    
    
    
    
    
    
    
    
    
    
    
    X31.1
    
    Certification of Principal Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification of Principal Financial Officer
    
    
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certification of Chief Executive Officer
and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
    
    
    
    
    
    
    
    
    
    
    
    X
 
 *
    
    Indicates a management contract or compensatory plan 41




---



##### Table of Contents



3Com Corporation
(Registrant)Dated: January 9, 2008
    By:
    /s/   Jay ZagerJay ZagerExecutive Vice President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer and a duly authorized
officer of the registrant) 42




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##### Table of Contents



EXHIBIT LIST
 Incorporated by ReferenceExhibit
    
    
    
    
    
    
    
    
    
    
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    Filing Date
    
    Herewith2.1
    
    Master Separation and Distribution
Agreement between the Registrant and Palm,
Inc. effective as of December 13, 1999
    
    10-Q
    
    002-92053
    
    
    2.1
    
    
    4/4/002.2
    
    Indemnification and Insurance Matters
Agreement between the Registrant and Palm,
Inc.
    
    10-Q
    
    002-92053
    
    
    2.11
    
    
    4/4/002.3
    
    Agreement and Plan of Merger, dated
December 13, 2004, by and among the
Registrant, Topaz Acquisition Corporation
and TippingPoint Technologies, Inc.
    
    8-K
    
    000-12867
    
    
    2.1
    
    
    12/16/042.4
    
    Securities Purchase Agreement by and among
3Com Corporation, 3Com Technologies, Huawei
Technologies Co., Ltd. and Shenzen Huawei
Investment & Holding Co., Ltd., dated as of
October 28, 2005
    
    8-K/A
    
    000-12867
    
    
    2.1
    
    
    3/30/062.5
    
    Stock Purchase Agreement by and between
Shenzhen Huawei Investment & Holding Co.,
Ltd. and 3Com Technologies, dated as of
December 22, 2006
    
    8-K
    
    000-12867
    
    
    10.1
    
    
    12/27/062.6
    
    Agreement and Plan of Merger by and among
3Com Corporation, Diamond II Holdings Inc.
and Diamond II Acquisition Corp., dated
September 28, 2007
    
    8-K/A
    
    000-12867
    
    
    2.1
    
    
    9/28/073.1
    
    Corrected Certificate of Merger filed to
correct an error in the Certificate of
Merger
    
    10-Q
    
    002-92053
    
    
    3.4
    
    
    10/8/993.2
    
    Registrants Bylaws, as amended on March
23, 2005
    
    8-K
    
    000-12867
    
    
    3.1
    
    
    3/28/053.3
    
    Certificate of Designation of Rights,
Preferences and Privileges of Series A
Participating Preferred Stock
    
    10-Q
    
    000-12867
    
    
    3.6
    
    
    10/11/014.1
    
    Third Amended and Restated Preferred Shares
Rights Agreement, dated as of November 4,
2002 (Rights Agreement)
    
    8-A/A
    
    000-12867
    
    
    4.1
    
    
    11/27/024.2
    
    Amendment No. 1 to Rights Agreement, dated
as of September 28, 2007
    
    8-K
    
    000-12867
    
    
    4.1
    
    
    9/28/0710.1
    
    Amended and Restated 3Com Corporation 1984
Employee Stock Purchase Plan (Amended and
Restated as of September 26, 2007)*
    
    
    
    
    
    
    
    
    
    
    
    X31.1
    
    Certification of Principal Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification of Principal Financial Officer
    
    
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certification of Chief Executive Officer
and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
    
    
    
    
    
    
    
    
    
    
    
    X
 
 *
    
    Indicates a management contract or compensatory plan 43